Yes one thing that turns this grey sky to blue, the look of love ABC

Oil is down 10%, copper was down a similar amount, and the US ten-year yield only a few days at 3.3% is now trading just above 3%. Even some of the soft commodities, corn and wheat have seen prices fall sharply this week, as well as this the USD is lower than it was 7 days ago.

As a result all those sectors battered for most of the year enjoying a renaissance as Jerome Powell, speaking before Congress, threw out the possibility the pace of rate hikes could slow in the coming months. A reluctant hawk turned just a tiny bit more into a dove as he was quizzed on the dilemma between rising prices and stagnating growth. Which was the worse of two evils?  

 Headline UK inflation this week came in line with expectations, and at 9.1% year on year is well above target still, it remains below the 11% that Andrew Bailey fears will come to pass. The core inflation rate did rise by 0.5% month on month, again below forecasts. Core inflation is running at 5.9% year on year, below the 6.1% analysts expected in May.

Leading indicators may be falling but still do not necessarily flash recession and the release of the latest Flash Purchasing Managers Surveys, including that of the UK, remain above 50 indicating continued economic expansion. On a more sober note, the US composite survey of services and manufacturing came in worse than expected at 51.2.

It may be true that the economic picture looks pretty bleak at present and the Fed will be well aware of that. Any signs that the rate of inflation is starting to slow one suspects the Fed will change its tone pretty quickly. Stocks will follow sharply. The recent outperformance of the interest rate-sensitive sectors provides some evidence where the odds of probability lie after a 30% fall.

The UK government is facing a strike from train workers and now the probability of British Airways staff as unions look to hold the economy to ransom in the face of rising prices. As much as we have enjoyed a wonderful period of prosperity, now the piper needs to be paid. The real risk to the UK economy is higher wages lead to higher prices lead to higher wages…. you get the picture.